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COMMISSION ON AUDIT CIRCULAR NO.

96-002
February 27, 1996

TO : All Heads of Department, Bureaus and Offices of the National Government;


Managing Heads of Government-Owned and/or Controlled Corporations,
Boards and Commissions; Provincial Governors; City/Municipal Mayors; Chief
Accountants/Heads of Accounting Units; Corporate/Local Treasurers; COA
Directors and Auditors; and All Others concerned.

SUBJECT : Accounting Guidelines and Procedures Relative to the Adoption of a Simplified


Fund Release System in the Government.

I. PURPOSE

This circular is issued to prescribe accounting guidelines and procedures relative to


the adoption of the Simplified Fund Release System (SFRS) in the Government in
accordance with National Budget Circular No. 440 dated January 30, 1995.

II. COVERAGE

This circular covers all government agencies, including Local Government Units
LGUs) and Government-Owned and/or Controlled Corporations (GOCCs) receiving
budgetary support from the National Government through Allotment Release Orders
(AROs) issued by the Department of Budget and Management (DBM), pursuant to the
General Appropriations Act (GAA) and such other duly enacted appropriation measures.

III. DEFINITION OF TERMS

The following terms as defined in NBC 440 are hereby reiterated:

1. Simplified Fund Release System (SFRS) is a standardized system of releasing


allotments based on a predetermined categorization or disaggregation of agency
budgets. Under this system, the category, of the expenditure item determines the
timing and the magnitude of the release of agency allotments in accordance with a
prioritization scheme consistent with government's overall development policy.

2. Agency Budget Matrix (ABM) is a document showing the disaggregation of agency


expenditures into the following components:

a. by agency
b. by locality
c. by fund
d. by program/activity/project
e. by allotment class
f. by source of appropriation
g. by specificity of appropriation
h. by need of clearance
3. Allotment Release Order (ARO) is a formal document issued by DBM to the head of
the agency containing the authorization, conditions and amount of an agency
allocation. The document may be a GARO or SARO. Prior to the implementation of
the SFRS, the document issued was the Advice of Allotment (AA).

4. General Allotment Release Order (GARO) is a comprehensive authority issued to


all agencies to incur obligations not exceeding an authorized amount during a
specified period for the purposes indicated. It shall cover expenditures common to
most, if not all, agencies without need of special clearance or approval from a
competent authority.

5. Special Allotment Release Order (SARO) is a specific authority issued to one or


more identified agencies to incur obligations not exceeding a given amount during a
specified period for the purpose indicated. It shall cover expenditures the release of
which is subject to compliance with specific laws or regulations or are subject to
separate approval or clearance by competent authority.

IV. GENERAL GUIDELINES


1. The SFRS for government agencies as implemented by National Budget Circular No.
440 by the DBM pursuant to Section 56 of the General Provisions of Republic Act No.
7845, the GAA of 1995, shall be adopted by all government agencies receiving
allotments from the National Government.

2. In lieu of the AAs, the GARO/SARO shall be the basis of the agency to incur
obligations. The GARO/SARO shall identify which budgetary items in the ABM are
being authorized for release and under what conditions the release is made.

3. In cases where the General Appropriations Act has not been passed by Congress,
Letter Authority is issued by the DBM for an agency to utilize a certain percentage of
its appropriation and all obligations incurred pertaining thereto shall be treated as
overdraft in appropriations. Said overdraft shall be adjusted accordingly upon receipt
of the GARO/SARO.

4. Upon receipt of the GARO or SARO, the amount authorized therein shall be recorded
in the books of accounts of the agencies. The correct Fund Code for releases under
the GARO shall be observed.

5. Allotment releases received by the agencies after December 31, shall no longer be
recorded in the books of accounts for the year. However, if the validity of the allotment
releases received after December 31 extends beyond the fiscal/calendar year, these
releases shall be taken up in the books of accounts in the ensuing years.

V. PROCEDURAL GUIDELINES

1. National Government Agencies (NGAs)

1.1 Upon receipt of the GARO or SARO, the Chief Accountant/Head of Accounting
Unit shall draw a journal voucher (JV) to record the total allotment authorized in
the SARO or GARO. The JV shall be recorded in the General Journal and posted
to the General Ledger. The allotment shall likewise be entered as memorandum
entry in the Journal and Analysis of Obligations (JAO). In the analysis section of
the JAO, the breakdown of allotment shall be recorded based on the ABM.

1.2 Certified copies of the above-mentioned JVs together with the quarterly trial
balance shall be forwarded to the Accountancy Office on or before the 20th day of
the month following the quarter.

1.3 The allotment to be recorded in the books of accounts shall be the total amount of
appropriation for the fund reflected in the "Not Needing Clearance" column of the
ABM multiplied by the percentage authorized in the GARO.

A sample computation of the amount of allotment of an agency is shown in Annex


B.

1.4 The Central Office (CO) of a department/agency whose Regional Offices (ROs)
receive their GARO/SARO direct from the DBM-RO shall record only the allotment
pertaining to CO operations.

1.5 In the case where the GARO/SARO received by the CO includes the allotment of
the ROs, the CO shall sub-allot the amount pertaining to its ROs. The RO shall,
likewise, issue Letter Advice of Allotment (LAA) and the corresponding funding
checks to its Operating Units (OUs).

1.6 For centrally managed projects where the GARO/SARO and Notice of Cash
Allocation is directly released to the CO, and funding checks are issued to
RO/OU, the reciprocal account shall be used when recording the transfer/receipt
of allotment.

1.7 In case of Special Purpose Funds and other appropriations released to the
Central Office but intended for ROs/OUs, sub-SARO shall be issued by the
Agency-CO to the RO/OU. The amount transferred to the RO/OU shall be
recorded as reduction from the allotment booked up by the CO and as regular
allotment in the ROs/OUs.

2. Government-Owned and/or Controlled Corporations (GOCCs) and Local Government


Units (LGUs)

2.1 The Head of Unit/Comptroller of GOCCs maintaining Special Accounts in the


General Fund (SAGF) shall follow the procedures stated in Items V.1.1 to V.1.4
hereof and shall record in their books of accounts the allotment released through
the Bureau of the Treasury as subsidy/ equity/loans outlays.

2.2 The LGU accountant record the allotments released through the Department of
Budget and Management as income, trust fund or any appropriate account,
depending upon the nature/purpose for which the releases were made as
indicated in the SARO.

3. Accountancy Office (AO), Commission on Audit (COA)

3.1 Based on the copy of the GARO/SARO and the ABM received from the DBM, the
AO shall draw a JV to record the total allotments for each of the national
government agencies in the Cumulative Results of Operations (CRO) books in
conformity with the Standard Government Chart of Accounts. The JVs shall be
recorded in the Journal of Appropriations and Allotments.

3.2 The amount of allotment recorded in the CRO books shall be reconciled with the
amount recorded by agencies upon receipt of the certified copies of JVs from the
agencies.

3.3 At the end of every quarter, the AO shall reconcile the amount of allotments
recorded in the CRO books with the allotments reflected in the quarterly trial
balances. Likewise, a quarterly reconciliation of releases shall be conducted with
the DBM.

3.4 Discrepancies noted between the amounts recorded by the agencies and those of
the AO should be immediately communicated to the agency concerned.
Corrections should be made within the following quarter.

4. COA Auditing Units

4.1 The Unit Auditor of the NGA shall see to it that the amount of allotment is correctly
recorded in the books of accounts. He shall audit the JVs and require the
quarterly submission of certified copies of the JVs to the Accountancy Office (AO),
Commission on Audit.

4.2 The Unit Auditors of GOCCs and LGUs shall ensure that the allotments received
from the National Government are recorded properly and utilized for the purpose
for which these were released.

5. Department of Budget and Management

5.1 The DBM shall furnish the AO, COA copies of the ABM by agency within the first
quarter of the calendar year. Likewise, it shall furnish COA with copies of all
GARO and SARO including those issued by the DBM ROs, together with the
supporting documents, such as letter authority, certification and approval of the
President of the Philippines, on or before the 15th day of the following month.

5.2 The DBM shall ensure that copies of all GARO/SARO are received by COA and
agencies concerned not later than December 31 of the current year.

5.3 Within twenty (20) days after the end of every quarter, the DBM shall reconcile
with the AO total allotments released during the period.

VI. ILLUSTRATIVE ACCOUNTING ENTRIES

The accounting entries to be followed by all concerned are provided under the
following annexes:

Annex A1: When Letter Authority from DBM is received instead of the GARO in
the earlier part of the current year.
Annex A2: Allotment per GARO/SARO released directly to CO and RO; and
allotment for OU sub-allotted by RO.
Annex A3: Allotment per GARO released directly to the CO and RO. Allotment
per SARO released to CO; CO issues Sub-Allotment to RO and RO
issues LAA to OU.
Annex A4: For agencies with centrally managed project where Notice of
Allocation or Notice of Cash Allocation are directly released to CO,
RO and OU.
Annex A5: Allotment for continuing appropriation per SARO released by DBM
during the current year but received by the agency in the ensuing
year.
VII. SAVING CLAUSE

Issues arising from the implementation of this Circular and cases not covered by
the provisions herein shall be referred to the Accountancy Office of this Commission for
resolution.

VIII.REPEALING CLAUSE

All Circulars, memoranda or other issuances which are inconsistent with this
Circular are hereby rescinded, repealed and/or modified accordingly.

IX. EFFECTIVITY

This Circular shall take effect January 1, 1995.

(Sgd.) CELSO D. GAGAN


Chairman

(Sgd.) ROGELIO B. ESPIRITU (Sgd.) SOFRONIO B. URSAL


Commissioner Commissioner